Home > Uncategorized > 2012/01/13: Quick Post: Equities Dip But Is It a Trend Reversal?

2012/01/13: Quick Post: Equities Dip But Is It a Trend Reversal?

© 2012 ROHR International, Inc. All International rights reserved.

Even though it was signaled that a broad range of European countries were on negative credit watch back in December, it appears that either later today or at the top of next week Standard & Poors is going to actually finalize those ratings cuts. However, two points are eminently worth making in light of the current market response. On the fundamental influence side, the sudden turn from upbeat data to weaker-than-expected indications in the US over the past couple of days has been offset by a more upbeat psychology out of Europe, aided and abetted by the various actions and pronouncements of the European Central Bank (much more on that in yesterday’s post.)

As such, the downgrades would significantly reverse all of that positive sentiment which had been built up since Signore Draghi’s successful psychological and financial influences on the markets since his first ECB press conference last year. The second point is the direct manifestation of all this in the markets, and whether this represents a sustainable trend reversal in equities along with the significant influence that will rightfully exert on other asset classes. While the final decision into the weekly Close is yet to be made, have no doubt that the trend decision is as critical as it can get.

While it has resiliently ratcheted up through resistance on the extension of the uptrend in place since its last selloff low into late November, March S&P 500 future gapping above 1,264-70 resistance Tolerance at 1,280.90 Tuesday set up the next extension of critical levels to a higher trend decision threshold. As noted previous, that has a lot to do with the fact it left significant congestion around Monday’s 1,275.60 Close as a buffer below it. A Close back below it will fully reverse the current short term upside momentum.

Of course, that’s the bit which is yet to be seen by the Close today, and is possibly more important than usual into the US Martin Luther King Day holiday weekend. That means no trading on any exchanges (not even the always reluctant New York Stock Exchange) on Monday. All of which will leave the extension of any decision today to the tender mercies of the next round of European influence on Monday with no US trading counterbalance it. And that goes beyond just the sovereign ratings concerns, as it will also depend upon whatever is or is not happening on the once again fraught Greek sovereign debt deal and rescue funding negotiations.

General Market Observations

As far as other markets go, it is all the same as previously noted: the other asset classes were just not reflecting the sort of sustained bullishness equities were attempting to signal with resilient ratcheting higher of the US stock markets in spite of European weakness. Much as last week’s gap higher in March S&P 500 future above 1,264-70 should have meant that govvies came back under pressure and the US dollar lost its haven bid against the euro, neither of those occurred in any meaningful way.

EXTENDED TREND IMPLICATIONS

The other asset classes were just not reflecting the sort of sustained bullishness equities were attempting to signal with resilient ratcheting higher of the US stock markets in spite of European weakness. Much as last week’s gap higher in March S&P 500 future above 1,264-70 should have meant that govvies came back under pressure and the US dollar lost its haven bid against the euro, neither of those occurred in any meaningful way. And have no doubt it was still all about the problems in Europe. As such, it is not a huge surprise that the March Bund future is attempting to escape its late September previous all-time high at 139.77. However, due to weekly oscillator indications as well as the topping line of the long-term channel (from the 110.74 June 2008 low), it would actually need to post a weekly Close nicely above 140.00 to confirm convincing escape to the upside.

While the other govvies are also strong, there is previous lead contract resistance above the March T-note future in the low 132-00 area, and on the contract itself for the March Gilt future in the 117.20-.39 range. The similar focus on Europe has also left the US Dollar Index finally pushing through its key resistance in the .8131-44 area, with next incremental resistance not until the mid- .8250 area. While the euro new low puts it only back down a bit further into its EUR/USD 1.2650-1.2550 support, that is quite critical as the last significant support this side of the 1.2150 and 1.2000 area supports.

Last, but by no means least, the weakness of February Crude Oil future in spite of the very contentious situation with Iran. That said, the failure from the 102.00-103.39 resistance range still leaves plenty of gap and significant congestion support into the 95.00-94.00 range. Also of note is that the February Gold future is not rallying on some sort of crisis ‘haven’ bid due to the situation in Europe. Gold being such a psychological animal means it will pay to watch the technical activity back down into the mid-December 1,615 DOWN Break at the bottom of the 1,615-30 range that was overrun earlier this week. If it holds, then possibly some further strength even in the face of extended equities weakness is possible. If not, then the midweek surge above it this week might just have been a temporary bear squeeze that reverts to more negative tendencies.

We hope you find this useful.

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